TMI Blog2009 (12) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... ation No. 36/2001 (N.T.), dated 29-6-2001 on 1-2-2002 for getting the goods manufactured from M/s. Vashishti Detergents Ltd.(VDL), indicating therein the name of the product, its chapter heading and the option for valuation i.e. whether the goods will be assessed under Section 4 or Section 4A of the Act. But instead of furnishing the pricing data directly in the declaration, HLL authorized VDL to furnish the prices at which HLL would be selling the goods to enable the department to determine the correct valuation of the said goods. 2. A processing agreement had been entered into between HLL and VDL which inter alia highlights the following facts : 2.1 HLL shall pay processing charges on tonnage basis with reference to all processing costs and profit of VDL, as would be mutually agreed. 2.2 VDL would avail Cenvat Credit benefits on the inputs supplied by HLL, which shall be adjusted against the Central Excise Duty payable on finished goods returned to HLL after processing. 2.3 HLL would be entitled to sell by-products, residues etc. which may arise or get generated on account of processing of the raw materials, including the packing materials supplied by HLL. 2.4 VDL shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Register. Technically since all the raw oils are blended together in a continuous process, the accountal is done based on input ratio on the blend in terms of its free acid contents, which are ascertained before blending. The DFA obtained from imported CPS is sold to HLL and the DFA obtained from other oils are either used captively under Notification No. 67/95-C.E., dated 16-3-1995 or transferred to HLL other factories on payment of duty. 4. According to the Revenue, based on intelligence received that VDL was undervaluing some of their products, viz. DFA and its by products. Investigation was initiated and after investigation show cause notice dated 22-9-2005 was issued wherein it was stated - 4.1 that HLL supplied various crude oils to VDL, free of cost, except CPS, which was purchased by VDL on high sea sales basis from HLL, and VDL processed the same to manufacture DFA, which was either used captively or transferred to HLL s other units on payment of duty on the, value arrived at based on cost of manufacturing principle; 4.2 that the by-products were sold to the customers of HLL on the price furnished by HLL and the sales proceeds were directly received by HLL the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 702223 2. V(15)15-0/ADJ/P- 11/06 dated 28-3-2006 April, 05 1745477 500000 1745477 3. V(15)15- 28/ADJ/P-11/06 dated 28-3-2006 March, 05 1394918 400000 1394918 6. After considering the submissions, impugned order has been passed against VDL confirming demands with interest and imposing penalties as under : Sr. No. Show cause notice No. Date Period Duty (Rs.) Penalty (Rs.) 1. V(15)15-140/ADJ/P.II/05 dated 22-6-2006 June, 05 19494059 19494059 + 5000000 2. V(15)15-87/ADJ/P.II/05 dated 22-6-2006 June, 05 702223 702233 + 200000 3. V(15)15-40/ADJ/P.11/06 dated 27-3-2006 April, 05 1745477 1745477 + 500000 4. V(15)15-28/ADJ/P.11/06 dated 28-3-2006 March, 05 1394918 1394918 + 40000 Total 23336677 29486677 7. The confirmation of demand of duty by the Ld. Commissioner, in the Impugned Order dated 27-9-2006 issue-wise can be deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CPS-DFA processed for HLL, as its valuation, based on cost construction, is higher. Invoking the higher cost price of non-CPS-DFA, duty on CPS-DFA was confirmed, since the sales price thereof to HLL by Appellants (VDL) is claimed to be less and, therefore, duty on such differential value is demanded. 8.4 It is relevant to note that entire quantity of CPS-DFA (DFA owned by VDL), i.e. CPS contained in DFA, although sold to HLL, is issued within the factory of the Appellants (VDL) for manufacture of Soaps which are cleared on payment of duty. Therefore, CPS-DFA, since used in the manufacturer of dutiable final products, was/is fully exempt from payment of duty under Notification No. 67/95-C.E. and claim to that effect also has been made in the CL-Declarations. However, Ld. Commissioner has not considered this submission and also has not offered any findings as to why the said proposition is not sustainable. 8.5 Since the CPS-DFA is exclusively used manufacture of Soaps for HLL, to keep the transaction and records straight and transparent, the Appellants (VDL) chose to pay duty and recover the value mutually agreed for deemed sale of the quantity of CPS-DFA captively consumed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvoked two different modes of valuation, contrary to each other, for confirming duty on other-by-products and CPS-DFA. 8.11 That when a fair transaction value to independent and unrelated buyer (i.e. HLL) is available and genuineness hereof is not in dispute, the question of invocation of cost price does not come in the picture. 8.12 That the crux of the allegation in the SCN/findings in order is that since the Appellant (VDL) were earning on an average 17% profit, profit @ 15% has to be added to the transaction value. This contention has no legal support, as in Transaction Value there is no requirement that such sale price should comprise of the profit. This is because of the fact that sales price, i.e. transaction value, is determined based on market forces and not based on the costing alone. That, in any case, it is a settled position of law that the sale price can be less than the cost price and there is no requirement of adding profit, based on the following judgments : (i) 2003 (55) R.L.T. 506 (S.C.) = 2003 (153) E.L.T. 249 (S.C.) - Guru Nanak Refrigeration (ii) 1998 (98) E.L.T. 422 (T) - Beltron Electronics (iii) 1998 (24) RL.T. 534 (T) - North East Gas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differential duty paid by the Appellants (VDL) on actualization and finalization of provisional assessment has also not been considered by the Ld. Commissioner and if the same is considered, duty liability would not sustain. 9.6 That since the allegations/findings for confirming the demand do not have any legal base, the demand is not sustainable. 9.7 From the above, it is clear that the transaction value taken together for CPS-DFA and the CPS-by-products was invariably more than the cost, and when the duty paid on by-products at the time of their clearance and on CPS-DFA at the time of clearance for captively consumption is considered, duty liability would not arise. 9.8 Revenue claims that the unit-value of other-by-products (non-CPS) has to be included into the value of other-DFA stock transferred to HLL, since it is claimed to be an additional consideration and to such so called additional consideration, profit of 15% has also been added. It is submitted that other-DFA or non-CPS-D PA is true DFA with a blend of various materials, including CPS and PFAD. 9.9 That while arriving at the cost of production of other-DFA (non-CPS-DFA), the landed cost of total materials, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (214) E.L.T. 321 (S.C.) - Jamshedpur Beverages 2007 (212) E.L.T. A-151 (S.C.) - Super Forgings Steels 2005 (179) E.L.T. 276 (S.C.) - Narmada Chematur 2004 (170) E.L.T. 69 (T) - MRF Ltd. 2003 (159) E.L.T. 1046 (T) - P.T.C. Industries 2003 (153) E.L.T. 579 (T) - Smithkline Beecham 9.15 Ld. Commissioner does not apply the ratio of the said judgments and duty neutrality holding that this issue is not at all contested in the show cause notices and what is contested is undervaluation leading to incorrect levy of excise duty. This finding itself supports the Appellants claim that the entire exercise is revenue neutral, which submission is made without prejudice to their claim that demand on merits is not sustainable. 9.16 That, in any case, the quantum of this demand is included in the demand on CPS-DFA sold to HLL and hence, the demand on this count alone does not survive, (since it is leading to duplication of demand). In view of the above submissions, the demand on this count is not sustainable. 10. Demand on by-products of the oil, other than CPS - Rs. 24,50,516/- 10.1 In the show cause notices dated 22-9-2005, 23-3-2006, 27-3-2006 22-6-2006, it was claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rers of HLL, job workers i.e. M/s. Utkal Soaps, Orissa, M/s. Kailash Soaps, Kolkata, etc, who in turn use the said Low Volatile in the manufacture of Laundry Soaps. Since Laundry Soaps are chargeable to duty and duty is being paid on MRP by the said parties, credit of Cenvat of duty paid on Low Volatile is being taken by them. The balance quantity of 20% to 25% of Low Volatile is sold by the Appellants (VDL) to HLL/their customers and clearance takes place on payment of duty on the HLL s sales price to its customers. HLL s customers, who purchase Low Volatile, being manufacturers, they take credit of duty paid on Low Volatile. 10.9 So far as Pitch Oil is concerned 20% to 25% of the quantity of Pitch Oil is used by the Appellants (VDL) as fuel to boiler without payment of duty by availing exemption under Notification No. 67/95-C.E., dated 16-3-1995 and no duty has been demanded on that much quantity. The balance 75% to 80% of Pitch Oil sold to HLL, who, in turn, sell the same to their customers. The Appellants (VDL) pay duty on HLL s sales price. 10.10 Revenue has aggregated the sales value of Low Volatile Pitch Oil by HLL to its customers and the has been averaged out and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (owned by HLL) is concerned, the same emerge from the raw materials received from HLL, free cost, under job-work arrangement, it is stock transferred to the HLL s nominated customers at the price declared by HLL. Since other-by-products belong to HLL and it is sold on payment of duty at a price indicated by HLL (i.e. HLL s sales price to their customers), the question of invoking comparable sales price of CPS-by-products, owned by the Appellants (VDL), does not arise at all. 10.16 It is noteworthy that since other-by-products are sold on payment of duty to the nominated customers of HLL, at the price informed by HLL to the Noticee, the question of any under valuation thereof, as alleged in the show cause notice, does not arise at all. 11. Demand barred by limitation : 11.1 Without prejudice to the submissions, in any case, major portion of the demand is barred by limitation, as extended period is not invokable in the absence of any suppression, mis-statement, etc., in support of which the following submissions are made : 11.2 That HLL had authorized the Appellants (VDL) to manufacture, on their behalf, inter-alia DFA and other products. In the said declaration, the mode o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) 1989 (40) E.L.T. 276 (S.C.) - Chemphar Drugs Liniments 11.9 Provisional assessments were finalized from time to time. In view of the above submissions, the demand covered under show cause notice dated 22-9-2005 is barred by limitation. 12. No revenue loss to exchequer - revenue neutral : 12.1 It is noteworthy that whatever duty was paid or had been by the Appellants (VDL), the credit to recipient units was available/would have been available, resulting in revenue neutral, entailing no loss to Govt. Exchequer. 12.2 Under the circumstances, it is only revenue neutral exercise, having no revenue implication and hence, even if the allegation is accepted for argument s sake, there is only a procedural lapse on their part, which does not have any affect on duty/recovery. The demand therefore on this count also is not sustainable. The claim of the Ld. JCDR on the higher yield in CPS-DFA and less yield in DFA would not have relevance, as it is not a case clandestine removal, but it is a case of alleged undervaluation, in any case, it was not substantiated. In ant case, the said yield indicated are theoretical ones based on the probable yield of different Oils/CPS, etc. an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, is not correct. He drew our attention to the appeal memorandum of the appellants to support his contention. Para 10 of the appeal memorandum filed by the appellants reads as under :- The DFA obtained from imported CPS was sold to HLL at the transaction value and the DFA obtained out of other oils supplied by HLL was either used captively under Notification No. 67/95-C.E., dated 16-3-1995 or transferred to HLL s other factories on payment of duty. Relying upon the order of the Commissioner and ether records, the ld. J CD R submitted that going by the claim of the appellants, the appellants were selling CPS-DFA below cost. Further, he also submitted that the claim of the appellants that transaction was on principal to principal basis and therefore, the transaction value can be accepted, is also not correct. The very fact that the appellants were calling the same product by the name CPS-DFA and selling it at lower price to HLL shows that the transaction was not on a principal to principal basis. Further, the Jt. CDR also submitted that the sale can take place only on physical removal whereas the. Appellants have affected sales without moving the CPS-DFA to HLL at all. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, on this ground also demand cannot be sustained. They cited several decisions in support of this contention which have been reproduced in para 8.6. The appellant also contested the addition of 15% profit on the ground that the transaction value included the cost of production. In this case, it is not only the fact that the whole exercise is revenue neutral but also the exemption Notification 67/95-C.E., for captive consumption was available to the appellants. Therefore, even though the appellants have not been able to make out a case, revenue neutrality and availability of exemption for captive consumption are sufficient grounds to hold that the demand of Rs. 1,73,89,261/- is not sustainable. Now coming to the second issue relating to the demand of duty on DFA transferred to HLL amounting to Rs. 34,82,867/-, this demand has been made by loading the sale value of by-products stock transferred to HLL or to their customers, to the sale price of other DFA cleared under the processing agreement. The appellants contested the demand on the ground that the price is determined on the basis of pure commercial terms. This cannot be accepted in view of the fact that the appellant is a jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Qty. of DFA mfg.(in MT) Aggregate Qty. of all the by-products mfg(in MT) Percentage of DFA to oils processed Percentage of by products to oils processed Total Col. 5 + Col. 6 (1) (2) (3) (4) (5) (6) (7) 1-2-2002 to 31-3-2002 2611 2162 401 82.80 15.35 98.15 1-4-2002 to 31-3-2003 17326 15466 1635 89.26 09.43 98.69 1-4.-2003 to 31-12-2003 15582 14009 1244 89.90 07.90 97.8 1-1-2004 to 31-12-2004 10453 9467 950 89.80 09.00 98.8 In the normal course, as claimed by the appellants, when the product is manufactured on job work basis, where the waste or by-product is returned or not or sold by the appellants themselves, the assessable value could not be affected. In this connection, the claim of the appellants and the reliance on the decisions of the Tribunal in the case of Mahindra Ugine Steel and Lloyds Steel are relevant but there is a clear excess production of by-products in the case of CPS-DFA, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is need to re-consider all the issues and arrive at a correct transaction value. Therefore, as far as this demand is concerned, we leave all issues open and consider it fit to remand to the original authority to decide the matter afresh. Now we come to the demand of Rs. 24,50,516/- on by-products of the oil other than CPS. This demand is in respect of by-products which have arisen as a result of processing of raw materials supplied by HLL. The Revenue has claimed that the non-CPS by-products have not has been sold but transferred at a lower price than the sale price of CPS by-products and therefore, difference has to be loaded. In this case also the appellant s claim that the CPS by-products means CPS content in each of by-products, whereas, non-CPS by-products means the by-products which have truly arisen. A similar claim made in respect of CPS- DFA and non-CPS-DFA has already been rejected by us. Since we have already considered all the reasons given, we do not find any need to go into the same and therefore, we uphold the Revenue s contention that CPS-by-products means, it is CPS by-products and not the CPS content. Another Contention is that in all these cases, goods ..... X X X X Extracts X X X X X X X X Extracts X X X X
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